Benefiting from the new margin framework- an example

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68

Thanks Ananth

On Point #2, On Mar 17th, when the NIFTY gapped up 3% and went further , I experienced margin calls on spread positions even after providing the “Margin Required” as specified in the Basket. What i noticed is that as long the underlying doesnt make any sharp moves, the basket is more or less correct. Once a sharp move say 2% index move happens, the additional margin requirement goes up unpredictably and significantly. My Live Spread margin went from INR 22K to nearly INR 30K within an hour’s time on Mar 17th . Second this happens even for spreads that are deep OTM. So a real time Margin calculator for FNO (incl spreads) can be really useful . more as an API

69

The problem here is exposure margin ie 2 percent of nifty it varies with movement of nifty.the problem increases with vertical spreads as our max risk is fixed but exposure margin go on changing so you need high margin

70

Let’s say I have a cash equivalent margin of Rs. 1,00,000 obtained by pledging liquid funds. I used this margin to SHORT NIFTY 16500 CE and obtained Rs. 12,000 as a premium. Now, for hedging I want to BUY NIFTY 16600 CE which requires Rs. 10,000.

For buying 16600 CE, do we need to separately have cash in our trading account or the premium obtained from selling 16500 CE be utilized?

71

Margin from pledging (even liquid funds) can’t be used to buy options. It can only be used as margins, so trading futures or short options. But yes, option premium received from shorting is considered like cash and can be used for buying options.

72

Premium credited by shorting option will be treated as Cash, You can use that funds for buying option to hedge the positions.

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73

So let’s say I short NIFTY 16500 CE at the beginning of the month and Rs.12,000 gets credited to my account. But to consider this as real profit, the option must expire worthless by the time of expiry right.

So can I use this Rs.12,000 to take new option positions right away or do I need to wait till expiry?

74

The credit will be available as soon the trade is executed, you can use those funds to initiate new trades at the same time.

75

Not entirely true.

If you short 1 lot of Nifty, you would need to maintain a margin of Rs60000+. And you will be able to use the premium received for Rs12000 for further order.

So if you are blocking the funds from cash balance - it doesnt make sense to block 60k to use 12k.

However if the margin is coming from a mutual fund, its a good opportunity.

1 Like
76

Current margin system for hedged option is shit need to remove exposure margin n consider spreads as a single trade exchange wide :thinking:

77

Hi @nithin ,

I had raised ticket #20220804214253 that margin calculation was not considering my hedge position entered 3 sec before actual sell order. I am not getting proper analysis from support person

Please assist to share why hedge position entered before sell order was not considered for short premium

78

Hey @vk_k, sorry to hear this. Having this checked. You will have an update on the ticket.